3 Cyclical Stocks to Buy to Prepare for Upcoming Market Conditions

  • Chipotle Mexican Grill (CMG): The restaurant chain opened 215 new locations in 2021, bringing the total to almost 3,000 locations.
  • Delta Air Lines (DAL): The airline forecasts Q2 revenue to reach 93% to 97% of the level achieved during the same quarter in 2019.
  • Disney (DIS): The entertainment giant’s theme parks are expected to see a multi-year period of robust growth.
The phrases 'Cyclical Stocks' and 'Non-Cyclical Stocks' are printed on a piece of paper with boxes next to them. A check mark has been drawn in the Cyclical Stocks box, and a pen rests on the paper.

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The performance of cyclical stocks heavily depends on economic cycles of expansion and recession. As a result, Wall Street regards them as high-risk, high-reward investments due to their inherent volatility. Cyclical stocks typically perform better when the economy is expanding, and the stock market is rallying. However, these stocks will face significant losses during a recession.

The Consumer Price Index (CPI) in March came in 8.5% higher than last year, hitting its fastest pace since 1981. Meanwhile, Brent crude jumped to $130 per barrel in early March, the highest since 2008. Amid growing uncertainty, the Invesco S&P 500 Equal Weight Consumer Discretionary ETF (NYSEARCA:RCD) has declined 16% year-to-date (YTD).

Investors can generally profit from cyclical stocks that are well positioned to remain profitable despite rising inflation and supply chain issues. Moreover, robust companies with a cyclical business model usually boast significant pricing power, allowing them to pass price increases to their consumer base.

With that information, here are three cyclical stocks to buy to power through the coming market conditions.

Ticker Company  Current Price
CMG Chipotle $1,488.29
DAL Delta Air Lines $43.28
DIS Disney $118.02

Chipotle Mexican Grill (CMG)

Chipotle Mexican Grill (NYSE:CMG) has become a leading player in the fast-casual chain restaurant space in the United States. Management now anticipates expanding its restaurant count by 8% to 10% per year, with up to 250 openings planned for 2022.

Chipotle reported Q4 2021 results on Feb. 8. Revenue increased 22% year-over-year (YOY) to $2 billion. Adjusted diluted earnings-per-share (EPS) came in at $5.58, representing a 60% YOY increase from $3.48. Cash and equivalents ended the quarter at $846 million.

Despite rising inflation, Chipotle continues to grow its business. Comparable restaurant sales increased 15%. In addition, digital revenue increased 25% YOY in 2021, representing 46% of total revenue. Soaring digital revenue enabled the company to double its operating margin to almost 11% in 2021.

After a strong 2021, CMG stock has lost nearly 12% YTD. Shares are trading at 49.5 times forward earnings and 6.1 times trailing sales. Meanwhile, the 12-month median price forecast for Chipotle stock stands at $1,900 according to CNN Business.

Delta Air Lines (DAL)

Delta Air Lines (NYSE:DAL) is one of the leading players in the global airline industry. Its flight network includes roughly 300 destinations spanning 50 countries worldwide.

Delta released Q1 2022 results on Apr. 13. Excluding third-party refinery sales, revenue was $8.2 billion, representing a 79% recovery compared to the same period in 2019. Diluted loss per share stood at $1.23, compared with diluted earnings per share of 96 cents in 2019. Cash and equivalents ended the period with $12.8 billion.

Demand has been increasing since the middle of February, offsetting the impact of soaring fuel prices. The company turned profitable in March, owing to the strong demand for leisure travel and record performance from Delta’s credit card partnership with American Express (NYSE:AXP). Management expects to report a substantial profit in the second quarter.

Despite the headwinds in broader markets, DAL stock has appreciated nearly 10% YTD. Shares are trading at 24 times forward earnings and 0.8 times trailing sales. At present, the 12-month median price forecast for Delta Air Lines is at $53.

Disney (DIS)

Our last cyclical stock is the media and entertainment giant Disney (NYSE:DIS). Its Pixar, Marvel and Lucasfilm studios make live-action and animated movies and TV series. Disney owns the entire chain of the entertainment business, including production technology, popular franchises, theme parks, streaming services and media networks.

Through Disney+, its content library reaches millions of households. It has about 130 million subscribers worldwide. However, given the question marks over Netflix’s (NASDAQ:NFLX) subscriber growth in 2022, Wall Street is also wondering if Disney+ will also come under pressure.

Disney reported Q1 FY22 results on Feb. 9. Revenue increased 34% YOY to $21.8 billion. Adjusted earnings-per-diluted-share came in at $1.06, compared with 32 cents in the prior-year quarter. Cash and equivalents ended the period at $14.5 billion.

Revenue from Parks, Experiences and Products soared 102% YOY. Per-capita spending at parks in the U.S. increased over 40% compared to the same quarter in 2019. In addition, subscriber growth for Disney+, ESPN+ and Hulu grew 37%, 76%, and 15% YOY, respectively.

DIS stock has declined 25% YTD. Shares are trading at 30 times forward earnings and 3.3 times trailing sales. Finally, the 12-month median price forecast for Walt Disney stands at $183.50.

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.


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